Wyoming Investment Manager Indicted for Allegedly Bilking Retired Investor
Tyris D. Maxey has been indicted on multiple counts of wire fraud and he was arrested this week. Maxey, a Wyoming investment manager, owns RB Mister Enterprises LLC. He allegedly convinced a retired school teacher to give him about $950K to invest and then using almost all of the funds on his own expenses.

Meantime, any investments he made with the investor’s money experienced “heavy losses.” Funds that he gave to the investor, which he claimed were returns, were actually the same funds that the teacher had given him to invest.

Authorities have arrested Bobby Eugene Guess, an ex-Texas-based registered representative and the CEO and founder of Texas First Financial, for financial fraud. Guess promoted himself as a financial expert through financial seminars and radio promotions in the Dallas-Fort Worth area.

He is accused of running a Ponzi scam online involving two companies—StaMedia Inc., which is a Dallas company, and TenList Inc. According to the Texas State Securities Board, Guess was indicted for money laundering, securities fraud, theft, and taking part in organized criminal activity involving the multi-million-dollar sales of investments in an internet ad company.

Prosecutors contend that Guess and others sold $6M in investment contracts, stock certificates, and notes in Stamedia Inc. Also, he allegedly raised millions of dollars from Stamedia investors from ’14 to ’16 but did not disclose that the company’s net income and revenue were negligible. Investor funds were allegedly used to pay earlier investors the returns they were promised.

United Development Funding IV, a Texas real estate investment trust, said that it has received a Wells Notice from the U.S. Securities and Exchange Commission. This is a sign that the regulator’s staff will likely recommend an enforcement action against the mortgage and development REIT. There are individuals connected to the company and its adviser that also received SEC Wells notices.

The UDF REITs have been in trouble for months now, ever since Harvest Exchange, a hedge fund that had a short position in UDV IV shares, published a report about how it believes the company has been run like a Ponzi scam for years. Harvest Exchange claimed that the REIT utilized new capital to pay current investors their distributions, while providing earlier UDF companies hefty liquidity in order to pay earlier investors. The hedge fund noted the earlier companies do not appear to be able to stand on their own without this liquidity from the latest UDF REITs.

UDF IV not only denied the hedge fund’s claims, but also it filed a complaint with the SEC claiming it had been the victim of a securities trading scam in which an investor was building a short stock position to illegally manipulate its shares.

The U.S. Securities and Exchange Commission is ordering WFG Advisors to pay a $100K penalty for charging clients too much on their investments business development companies and real estate investment trusts. The Dallas-based firm is the registered investment advisory arm of Williams Finance Group.

According to the regulator, the purported overcharges took place from 1/11 through 8/13. The SEC claims that WFG Advisors had policies and procedures that were inadequate, which kept it from identifying and stopping incidents of overcharging. Because of these inadequacies, including what the regulator considered a lack of technological capabilities, 35 accounts were collectively overcharged $34,640.63 in advisory fees.

The Commission said client’s in the firm’s wrap account program were told that they would be charged a commission to buy alternative investment product interests, including interests in BDCs and REITs. However, there wasn’t supposed to be an advisory fee. Instead, said the Commission, WFG Advisors charged both a commission and an advisory fee. (Forms submitted to the regulator included false statements saying that wrap program participants would not have to pay commissions for transactions that took place in their accounts.)

According to InvestmentNews, a number of independent broker-dealers could find themselves in legal hot waters, should investors decide to pursue them through arbitration for selling UDF real estate investment trusts. United Development Funding is under investigation over allegations that the UDF IV was run for years like a Ponzi scam. UDF IV was initially a nontraded real estate investment trust that later became listed as a publicly traded REIT.

The article goes on to name four firms that sold the UDF REITs or private deals to investors: Financial Services Inc., Berthel Fisher & Co., VSR Financial Services Inc., and Centaurus Financial Inc. Other firms also have sold UDF REITs to investors.

The allegations against UDF first surfaced in December in an anonymous post published on Harvest Exchange, an investor website. Among the accusations: that the UDF umbrella demonstrated traits “emblematic” of a Ponzi scam; new capital was used pay existing investors; and newer UDF companies were giving liquidity to earlier UDF companies to pay earlier investors. Noting that a hedge fund had created a short position in UDF IV shares, the company accused the fund of trying to illegally profit by depressing and manipulating UDV IV’s share price.

Recently, J. Kyle Bass of Hayman Capital also published a website about the allegations. On the site, Bass acknowledged that Hayman maintains a short position in UDV IV common stock.Continue reading

Former Broker Is Subject of Numerous Securities Claims
If you are an investor who sustained losses after purchased real estate investments trusts with the help of former broker Jerry McCutchen, you may have grounds for a securities claim. According to the Financial Industry Regulatory Authority’s BrokerCheck Report, McCutchen is accused of making unsuitable investment recommendations and he has been the subject of over a dozen broker fraud claims alleging negligence, misrepresentations, and other claims.

In one case, McCutchen, while registered with Berthel Fisher & Company Financial Services, Inc., is accused of placing a couple’s retirement funds in speculative, illiquid, alternative investments that he misrepresented as safe investments in line with the husband and wife’s investment goal to keep their money safe. In reality the Tier REIT, the Icon Leasing Fund Twelve LLC, and others, did not have proper diversity or allocation and were not suitable for the couple.

McCutchen is not registered with any firm at this time nor is he a licensed broker at the moment. He was registered with Berthel Fisher & Co., Bay City Securities, Next Financial Group, First Funds Inc., FSC Securities Corp, Central Brokerage Services, Commonwealth Equity Services, MML Investors, Proequities Inc., and Walnut Street Securities.

NY Hedge Fund Manager Ordered to Pay $18M
Moazzam “Mark” Malik, and his American Bridge Investment Group LLC are facing SEC charges accusing them of bilking 19 clients of over $1M through the sale of limited partnership interests in a fake hedge fund that was run under different names. The SEC said that Malik claimed that the fund held $100M when that amount was never more than about $90,000. Now, the regulator is ordering Malik to pay $18M.Continue reading

J. Kyle Bass, the hedge fund manager who runs the Dallas-based Hayman Capital, has set up a website accusing Texas-based REIT United Development Funding IV of running a Ponzi-like real estate scam. On the site, Bass published a letter to readers, claiming that his firm had conducted research and found that the nontraded real estate investment trust displayed characteristics in line with a billion-dollar Ponzi scheme.

Bass contends that UDF used money from a public affiliate to rescue its first fund. According to Business Insider, Bass also claims that UDF management has been distorting its poor track record and the financial state of its affiliates going as far back as the financial crisis. He alleges that UDF has been taking advantage of retail investors and using UDF- controlled entities and real estate backed loans to conceal the fact that new investors money is b used to pay existing investors.Continue reading

Investors have filed a class action securities case claiming that the Texas nontraded real estate investment trust United Development Funding IV (NASDAQ:UDF) and certain of its officers violated federal securities laws. The complaint come a month after the Harvest Exchange website published a report accusing the Company of running a Ponzi-like scam. The UDF umbrella is accused of raising capital to bail out its earlier vintage entities.

On December 10, 2015, the day that the report went out, UDF’s shares dropped significantly. The Company then put out a press release disclosing that its UDF IV and UDF III have been cooperating for nearly two years with the U.S. Securities and Exchange Commission, which has been conducting a non-public probe since early 2014. Following that announcement, Company shares fell even further, negatively impacting investors.

A shareholder of Resource Capital Corp. is suing the real estate investment trust (REIT) because of the way it dealt with a Puerto Rico hotel loan portfolio and a $41 million write-down that resulted last year. Plaintiff Josh Reaves says that the REIT’s directors knew there was bleak information about the deteriorating financial state of the U.S. territory way before a press release went out in August revealing there had been a $41 million write-down on a hotel mezzanine loan. The announcement caused the REIT’s stock to drop over 12% ,while erasing $55 million in market capitalization.

Reaves says that Resource Capital should have known as early as February 2014, when Puerto Rico debt was downgraded to “junk” status, that investments on the island were at risk. Instead, he contends, the REIT did not disclose the degree to which its loan portfolio was exposed to the Puerto Rican economy, misrepresented the degree of risk the portfolio could handle, did not abide by disclosure practices as they pertain to loan impairment, did not accurately represent the portfolio’s value, and failed to have the internal controls needed to stop the risks from becoming too precarious.

In August 2015, when submitting its filing to the SEC, Resource Capital wrote that the loan’s outstanding balance was $38.1 million and moved $3 million of accrued interest to the negative column from the positive column. Because of the $41 million write-down, $31 million was lost over that quarter.

Reaves’ case is a derivatives lawsuit. He is filing it on the company’s behalf. This means that Resource is a nominal defendant. The defendants named included the REIT’s CFO David Bryant, CEO Jonathan Cohen, Chairperson Steven Kessler, and a number of its board members.Continue reading

United Development Funding IV Shares Fall After Allegations of Texas Ponzi Scheme
United Development Funding IV (“UDF IV”), a Texas-based real estate investment trust (“REIT”), saw its share price drop after Harvest Exchange published a post that said the REIT had been run like a Ponzi scheme for years. United Development was a nontraded REIT that became traded when it listed on Nasdaq last year under the symbol “UDF”.

In the report on the Harvest site, the anonymous author said that the UDF umbrella had traits indicative of a Ponzi scam, such as, it uses new capital to pay distributions to current investors and UDF companies and gives substantial liquidity to earlier UDF companies to pay earlier investors. The article said that once the funding of retail capital to the most current UDF stops, the earlier UDF companies do not seem able to stand on their own. This purportedly indicates that the structure will likely fail and investors will be the ones sustaining losses.

After the report by the online professional network of investors, UDF IV saw its share price plunge from $17.53 to $10.10. It later dropped further to $8.55/share.

Over $1M Awarded in Senior Financial Fraud Case Against Morgan Stanley and a Former Financial Adviser
A Financial Industry Regulatory Authority Inc. arbitration panel has awarded 92-year-old Genevieve Lenehan (“Mrs. Lenehan”) over $1M in her claim against Morgan Stanley (MS) and former Morgan Stanley advisor Justin Amaral (“Amaral”). Mrs. Lenehan accused Amaral of churning and reverse churning her account. Amaral also advised Mrs. Lenehan’s husband until his death five years ago.Continue reading